Do you remember when we would all watch the same shows on cable?
Sure, you can go back to when TV had like three channels, but at least for me, my memory goes back to the first episodes of American Idol. How first, we’d all catch up over last night’s episode before resuming whatever side drama existed once you snapped back to reality. We don’t have that anymore. Maybe briefly over quarantine when Netflix brought us You or The Queen’s Gambit. Still, we don’t feel as close as we were then.
I guess we do have something. It was interesting how, much like in 2020, we all sat in front of our phones and laptop screens, we would watch the market tick higher and higher. How we drew lines on charts and thought we were experts on calling head and shoulders pattern opportunities. Only now to all agonize in pain as the market continues sifting through the ocean’s sands to find a bottom. We’re left stalking Fed meetings to guess where interest rates will land for the next 30 days.
Anyway… I know I’m late, but I’m finally finishing the last season of Euphoria.
Despite the show being centered around a group of high schoolers’ alcohol and drug abuse and completely dysfunctional parents, the show is actually a bit intoxicating. But the ability to live in Rue’s head is what’s so entertaining. Even moreso than the high school drama that makes this show so well. Fez. Maddy. Gia. Cassie, all have their own experience that we can live vicariously through, but it’s Rue’s perspective that we know the best. I imagine how, today, if we could be a narrator in the main character’s head, I wonder what it would sound like…
Season 22: Episode 10
It’s been 298 days since the market surveyed the room, opened the window, and without hesitation, took its descent.
But somehow, this one still feels different. And it’s true. Every bear market or recession is different. Not all bear markets are characterized by sky-high inflation met with the fastest-paced rate hikes in history, ground-leveling hurricanes, or wars with threats that things could get nuclear. Well, maybe the closeness of the tech bubble, ’08, Katrina, and the Twin Towers’ hapless fate was the reason that decade was just so stagnant. Shit… maybe we should be nervous.
But still, the reasons for the recessions of the 80s were clearly much different than that of ’08.
Despite the differences, it is the pattern everyone searches for. The similarities between this disaster and the last. But notice the one thing that remains the same throughout each event: behavior. The period of extreme fear. The flight from risk. The eventual decline we see in our individual economies. Naturally, this is followed by less overindulging and the unfortunate fact that someone has to lose their job. It’s the shoe we’re currently waiting to drop before we’re actually in a “recession.”
Knowing all this, what is one to do? It’s one thing to believe you’re a contrarian when things are peachy; everyone is getting rich and happy, and you’re the asshole who has to rain on everyone’s parade. Of course, the eventual pullback is only imminent, but are you willing to stand on that contrarian pedestal? When every sector, every investment factor, every asset class, fundamentals, technicals – all beat to shit?
And that’s where the next cohort of wealthy individuals is made. It’s been done for hundreds of years in private and public markets, real estate deals, and we’ve seen it’s possible even in the crypto world.
But most people aren’t.
“I’ll get back to you when things are better out.” No offense, but don’t bother. By then, it’s too late. Like a letter from beyond the grave, the market writes you: “if you’re reading this, then that means I’m no longer with you.”
Again, although all are hard to stomach, each recession is different. Not all recessions result in home prices crashing and debt overload, just as not all suspended slumps start by a policy-making inflation problem and an instigated war causing almost global energy price changes. This is why it’s impossible to say that buying Treasuries or depressed-price rental properties is the solution for every 20%+ decline.
So, if you’re serious about this ride, it’s why you have to have a playbook and a list of rules that will get you to the other side of that storm wall.
I wrote this list of rules, a survival manual, given that it should hold its value the next time Chance rears her ugly head.
1. Buy. What if the market continues to fall? Buy more! Historically, the market has never lost money over a 20-year period. I can’t say the same for individual investors. Remember, the market rewards discipline.
Read this book if you haven’t already!
2. If you can, contribute to a Roth IRA as much as possible. The Roth is much more important than the taxable account in this environment. Tax-free on the way up and out. Be aware there is only a short list of reasons that can avoid the 10% early withdrawal penalty. Roth conversions (if it makes tax sense) and Mega-Backdoor Roths apply, too.
3. Don’t look at your balance. As hard as it is, don’t look. Just as you shouldn’t let the balance sway your decisions in a bull market, you shouldn’t let the long decline cloud your judgments, either.
4. Take a vacation if you can afford it. There is nothing like relaxing at the beach, hanging out with wild peacocks, seeing the great mountain ranges, visiting new cities, and not having a care in the world while everyone else is worked up over what too shall pass.
5. You’re not limited to one rebalance. Of course, don’t try and time the market, but a bear market is technically a 20% decline. That’s already reason enough to rebalance. If it falls more, to 30% or even 40%, wait 31 days and consider harvesting some losses and rebalance again. Remember, losses are our friends, not food.
6. You are what you eat. Every bit of news, opinions, and stories, that you choose to and choose not to consume defines your experience. Be wary of confirmation bias. Sometimes you have to tune out and rationalize whether this is actually affecting your life or is it the thought that it will affect your life affecting your life. In other words, watch you consume.
7. Be open to change. Respect that (1) what once worked in the past may not always work; things change. Those who don’t adapt die. (2) No one knows the future. And although there are reasonable inferences of what could happen, there are simply unknown unknowns in the future that no one can predict.
8. Tax-loss harvest. See 5.
9. If you have a lump sum of cash or you’ve already sold out of the market, the system to get back in must be much stronger than the reasons you got out. When emotionally charged, clicking the sell button feels like the easiest decision in the world, but when to hit buy isn’t so apparent. You have to have a rock-solid system — one lump sum/dollar cost averaging — that reduces mentally taxing decision-making if the prices do, or do not, go in your favor.
10. Find your optimism. As we get older we tend to become more and more pessimistic. It seems that we have less faith in who is in majority rule now because they challenge, or are not, what we grew up on. I can’t tell you where you get your mental strength from. That’s on you. For me, it’s been running. You may enjoy reading. Youtube videos. Whatever it may be, find your optimism and hold on to it for dear life.